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A Look at Miner Correlations: What Do They Indicate?

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Jul. 25 2016, Updated 8:06 a.m. ET

Correlation with gold

The precious metal market has skyrocketed in 2016. Despite this trend, it’s crucial for investors to know which mining stocks are overperforming or underperforming their peers in order to short-list the upstream and downstream stocks.

Precious metal mining shares that have high correlations with gold include Yamana Gold (AUY), Pan American Silver (PAAS), Coeur Mining (CDE), and Barrick Gold (ABX). On a YTD (year-to-date) basis, these four stocks have risen 198.9%, 179.7%, 437.1%, and 176.6%, respectively. These substantial returns are most likely due to the same safe-haven bids that boosted gold and other precious metals.

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Most mining companies have seen losses over the past few days. This is due to the reduced positive sentiment for gold as tremors over the Brexit vote subside. Also, geopolitical events such as the terrorist attack in France and the Turkey military coup attempt failed to substantially raise safe-haven bids for gold.

Correlation trends

As you can see in the above table, Yamana Gold is the most correlated with gold among the four stocks on a YTD basis. Pan American is the least correlated to gold.

For Coeur Mining, the correlation rose from a 48.5% three-year correlation to a 51.6% one-year correlation. A correlation of 51.6% suggests that about 51% of the time, Coeur Mining will change in the same direction as gold. A fall in gold leads to a fall in the price of Coeur Mining shares, and a rise in gold leads to a rise in B2Gold.

The relationships of the other three miners with gold haven’t been stable over the past three years. The correlation has seen upward and downward movements.

Together, these four stocks make up 13% of the VanEck Vectors Gold Miners ETF (GDX).

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